BP shores up its defences to resist US swoop

For conspiracy theorists, this has always been the end game. A catastrophic
oil spill. A political pummelling from President Barack Obama. And then,
when BP is suitably softened up, a swoop from Exxon with a £100bn bid,
providing an American solution to a very British problem.

By Helia Ebrahimi

9:01PM BST 11 Jul 2010

The theory is so seductive that it has seeped through Washington ever since it became clear just how damaging the Gulf of Mexico spill was going be to what was, back in April, Britain's biggest company.

How could Exxon, or indeed its smaller US rival, Chevron, resist? Here was one of their biggest competitors in meltdown, its value almost halving in a matter of months and the reputation of its chief executive Tony Hayward as ruined as the Deepwater Horizon rig.

Just as telling, here was a British company that had gained pariah status in one of its main markets, with the latest spill and deaths of 11 men coming so soon after the Texas oil refinery disaster that killed 15.

No doubt any move by an American predator for BP would be political dynamite, the first real test of David Cameron's coalition Government. Britain's new PM would come under intense pressure to intervene, given that BP really is a strategic asset for the nation, unlike Cadbury, which made Lord Mandelson come over all soft-centred when it turned into a chocolate snack for America's Kraft.

But despite soundings that the British Government would protect BP e_SEnD in the main because of its alignment to foreign policy through stakes such as BP-TNK in Russia e_SEnD no sensible company can sit back and wait to be bailed out. Which is why despite there being no actual bid, BP is preparing what could be described as the mother of all defence strategies which it aims to unveil at its Q2 results on 27 July.

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The first element is simply operational. This week could herald the biggest breakthrough yet in plugging the Macondo well, which would see the fitting of a capping system to capture up to 80,000 barrels per day, up from about 25,000 previously. In August, if all goes to plan, BP will kill the well completely. Its shares jumped 20pc last week on news of the operational progress, and a rising share price narrows the window of opportunity for any bidder.

The next part concerns shoring up the company's financial defences. It has already been forced to place $20bn in an escrow account to satisfy Obama's concerns for clean-up and compensation claims, though some analysts reckon the total bill could reach $70bn. BP has already postponed the $10bn a year dividend to take the political heat off but many in the City believe it needs to strengthen its balance sheet. Although BP will unveil $10bn of firm intentions in assets sales and another $10bn that could also go under the hammer, the company is keen not to look like a forced seller.

A rights issue at BP's bombed out share price would be highly dilutive, so it will rely on a series of debt issues of up to $20bn. But all defence strategies need one other key ingredient: leadership – an issue still hampering BP's credibility.

And even if Exxon has no plans to bid for BP as a whole, the Gulf of Mexico is in its sights. With US political pressure likely to be fiercely anti-BP for some time, insiders fear that its prize Gulf wells – which deliver 10pc of its oil output – may have to be sold. Although a successful defence might let BP cling on, our American cousins may still prefer Rex W Tillerson, the chief executive of Exxon, at the helm of "British Petroleum".